Rich world’s rate-cut momentum is fading away
Central bankers are stepping back to assess how their progress so far is impacting growth and inflation
[LONDON] The final flurry of global monetary policy decisions for 2025 is likely to showcase how the easing cycle in advanced economies either lacks fresh impetus or is effectively over.
A year that dawned with the prospect of successive, if limited, rate cuts across the rich world is set to end with that momentum losing steam. Instead, central bankers are stepping back to assess how their progress so far is impacting growth and inflation.
The Federal Reserve’s cloudy outlook for any further reductions following Wednesday’s (Dec 10) quarter-point cut is one part of that backdrop. Another is that the global economy has apparently weathered US President Donald Trump’s tariff onslaught better than expected.
Among multiple decisions due on Thursday and Friday, the Bank of England’s (BOE) probable reduction in borrowing costs may draw the most scrutiny. It’s an outcome that investors will look to for clues on whether it could be one of the BOE’s final moves of the cycle.
The European Central Bank (ECB), meanwhile, is set to present higher growth forecasts that may cement the tentative rate hold officials have enforced since May, with questions to president Christine Lagarde likely to focus on how soon a pivot to tightening could transpire.
Policymakers in four other European countries are expected to keep borrowing costs steady. The Bank of Japan (BOJ), meanwhile, is widely expected to hike.
“Bloomberg Economics’ ECBspeak Index, our proprietary central bank sentiment indicator, suggests the hawks have the momentum and their preferred outcome for the December meeting – no change in interest rates – will surely be delivered.” said David Powell and Simona Delle Chiaie, economists of Bloomberg Economics.
In comparison to the advanced-economy narrative of a potentially shifting tide for policy, the direction of travel elsewhere is less clear. Several other central banks are set to extend easing cycles in the coming week.
Elsewhere, multiple data releases in China, inflation figures from the UK to Canada and jobs numbers in the US will be among the highlights.
US and Canada
A deluge of delayed data will offer traders and policymakers a much-anticipated snapshot of the US labour market and broader economy.
Following the Fed’s latest decision to lower interest rates, the November jobs report – due on Tuesday – will begin to shape the 2026 outlook for borrowing costs.
Economists project a 50,000 increase in payrolls and a 4.5 per cent unemployment rate, consistent with a sluggish, but not rapidly deteriorating, labour market.
The report will also include an estimate of October payrolls – figures that were delayed by the federal government shutdown. However, the Bureau of Labor Statistics (BLS) said it was unable to conduct its survey of households for the month, and as a result won’t publish an October unemployment rate.
The fallout from the longest-ever government shutdown extended to another high-profile economic indicator: the consumer price index. The November CPI report on Thursday will have no monthly changes for most of the price categories, including the overall CPI and core measure that excludes food and energy.
That’s because the BLS said it was unable to collect much of the October price information. November data collection was also delayed by the government shutdown, adding another caveat to the widely-watched figures.
The US will also issue figures on October retail sales. Excluding autos and petrol, economists forecast an acceleration in outlays that would suggest solid consumer demand at the start of the fourth quarter.
Looking north, Canadian inflation likely remained close to the 2 per cent target in November, with the Bank of Canada anticipating that core metrics will point to about 2.5 per cent growth in underlying price pressures. The central bank has signalled it’s comfortable holding rates steady unless the outlook for inflation and growth changes materially. governor Tiff Macklem will give his final speech of 2025 on Tuesday.
Asia
The week in Asia is book-ended by two key events at the BOJ. On Monday, Japan’s central bank releases its Tankan survey, which is expected to show business sentiment at large manufacturers improved a tick in the three months through December, extending the index’s streak of relatively upbeat, double-digit readings to nine quarters.
That outcome would back the case for governor Kazuo Ueda’s board to boost the benchmark rate to 0.75 per cent on Friday in what would be the first hike since January; authorities have sent multiple signals meant to prepare investors for a hike. The BOJ’s move will likely be the second or third rate change – in opposite directions – in the region in the coming week.
The Bank of Thailand (BOT) and Bank Indonesia (BI) both meet on Wednesday, with the BOT seen reducing borrowing costs by a quarter point. Economists are evenly split on whether BI might do the same. Taiwan’s central bank is expected to hold policy settings steady a day later.
In data, China will release a flurry of figures likely to paint a bleak picture for November, with the year-to-date slide in fixed-asset investment seen deepening to minus 2.3 per cent as the slump in property investment worsens to minus 15.4 per cent for the first 11 months. Growth in retail sales and industrial output is predicted to hold at paces near the weakest in at least a year.
Japan’s national CPI figures on Thursday are expected to show consumer inflation remained at or above the central bank’s 2 per cent target for a 44th consecutive month, delivering more support for a rate hike the following day.
New Zealand may show that economic growth returned to positive territory in the third quarter. Sri Lanka also releases GDP data this week.
Asia gets a few flash PMI readings for December on Tuesday, with reports from Australia, Japan and India. Australia’s consumer confidence data are due the same day. Trade figures will be published during the week in India, Malaysia, New Zealand and Japan.
Europe
The key question overshadowing the BOE decision on Thursday is whether governor Andrew Bailey – the swing voter for no change last time round – will now favour a rate cut that could help stimulate the economy. That outcome is predicted by all economists surveyed by Bloomberg.
Wage data on Tuesday and inflation numbers on Wednesday may still prove crucial for the outcome. Consumer-price growth for November is expected to have slowed to 3.4 per cent, a six-month low that’s still notably above the BOE’s 2 per cent target.
The ECB, meanwhile, is likely to face scrutiny on how far officials share the view of hawkish Executive Board member Isabel Schnabel that their next move may be a rate hike. New quarterly forecasts will feature their first judgement of the inflation outlook for 2028.
Data highlights within the euro region include industrial production on Monday, flash readings of purchasing manager indexes on Tuesday, and Germany’s closely-watched Ifo business confidence gauge the following day. BLOOMBERG
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